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Artificial intelligence, occupational adjustment and labor income share: Firm-level evidence from China1

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  • Li, Lin
  • Ai, Yang
  • Song, Pei
  • Na, Meiya

Abstract

We document substantial changes in firms’ occupational structure and labor income share associated with the rapid diffusion of artificial intelligence (AI) in China. We extend a standard structural framework by modelling AI as a distinct production input that both substitutes for goods-production tasks and complements service-production tasks, generating a trade-off between a labor reallocation effect and a capital deepening effect. Using numerical simulations and firm-level data, we quantify these mechanisms and show that a one-standard-deviation increase in AI adoption raises the share of service occupations by 7.8% while reducing the labor income share by 2.3%, indicating that capital deepening dominates in the Chinese context. Heterogeneity analysis shows stronger occupational upgrading in labor-intensive and inland firms, whereas the decline in labor share is more pronounced in state-owned enterprises and less competitive markets. These findings suggest that AI reshapes internal firm structure through simultaneous labor reallocation and capital deepening, with important distributional implications.

Suggested Citation

  • Li, Lin & Ai, Yang & Song, Pei & Na, Meiya, 2026. "Artificial intelligence, occupational adjustment and labor income share: Firm-level evidence from China1," Economic Analysis and Policy, Elsevier, vol. 91(C), pages 1322-1341.
    • Handle: RePEc:eee:ecanpo:v:91:y:2026:i:c:p:1322-1341
    DOI: 10.1016/j.eap.2026.04.022
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